Key Takeaways:
Healthcare has quietly become the market's hedge against an AI unwind, with the sector beating semiconductors by more than 30 percentage points in a month.
Healthcare stocks have become a hedge against the AI trade, outperforming semiconductors by more than 30 percentage points since late June.
"The biggest conversation driving the trading dynamic within healthcare is one that mostly rests outside of the sector," said Asad Haider, head of U.S. healthcare equity research at Goldman Sachs. "For investors focused on fundamentals, it can be frustrating."
The VanEck Semiconductor ETF and the State Street Health Care ETF have moved into negative correlation, according to FactSet data, meaning the two increasingly trade in opposite directions. Over the past four years, the chip fund has surged more than 300 percent while the healthcare fund has gained about 25 percent. The semiconductor fund has traded between 22 and 30 times forward earnings in recent months, versus about 18 times for healthcare.
The widening gap reflects algorithmic money sliding out of crowded technology positions and into overlooked sectors as concern builds over whether AI-driven growth can last. If the AI trade cracks, healthcare stands to gain further; if it holds, the sector's relative cheapness still offers a defensive anchor.
People need medicines and treatments regardless of the economy or the AI build-out, so healthcare demand and cash flows stay relatively constant even in a slowdown. That makes the sector a natural place to hide when much of the stock market has become a single bet on artificial intelligence.
Political pressure is also easing. Fears of drug-pricing crackdowns from the Trump administration have cooled, and Medicare payments have come in higher than expected. Large-cap leaders including Eli Lilly, Johnson & Johnson, UnitedHealth Group and AbbVie are all delivering steady earnings growth.
The pattern has precedent. During the 2022 bear market, when surging inflation and aggressive Federal Reserve rate increases hammered high-multiple technology stocks, healthcare outperformed semiconductors by more than 30 percentage points. The nervousness has resurfaced this summer, with Wall Street's semiconductor index slipping into bear market territory after tumbling more than 20 percent from its June peak as investors questioned the pace of AI spending.
The market is increasingly treating healthcare companies alike even though their fundamentals diverge. Bristol-Myers Squibb and Johnson & Johnson are both up more than 40 percent over the past 12 months, yet J&J remains a steady earnings grower while Bristol-Myers faces an expected earnings decline as key patents lapse. Whatever happens with AI, Haider argues, the soundest approach is to favor companies with growing top lines rather than buying whatever looks cheap.
With the sector's own outlook improving, there is already a case for owning parts of healthcare on its merits. If the AI trade implodes, that case only gets stronger.
This article is for informational purposes only and does not constitute investment advice.
